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United States Citizen Shareholders of Medicine Professional Corporations or Dentistry Professional Corporations in Canada

When deciding whether to incorporate a medicine professional corporation or a dentistry professional corporation one of the considerations should be whether any of the shareholders of the corporation is a U.S. citizen. If one of the shareholders is a U.S. citizen they could be subject to U.S. taxation on certain undistributed income of the corporation

if the corporation qualifies as a Passive Foreign Investment Corporation (PFIC) or a Controlled Foreign Corporation (CFC) under U.S. law.

The U.S. tax system is different than Canada’s in that it requires any U.S. person to report U.S. tax on their worldwide income even if they don’t live in the United States. A U.S. citizen is generally required to report their income in a CFC annually. Regardless of whether the income is actually distributed the income (above a de minimis amount) is deemed to be attributable to the shareholder and therefore subject to possible tax.

Of further concern is the fact that the US Internal Revenue Code contains rules that generally disallow an individual’s use of corporations if the intent of the individual is to defer taxes. The rules surrounding CFCs and PFICs are quite complicated and beyond the scope of this blog post. If you are a U.S. citizen and you are thinking of incorporating it would be advisable to meet with U.S. tax counsel to ensure your professional corporation will not fall into the complex U.S. tax traps. If they do it may not be worth it to incorporate. This blog post is for information purposes only and should not be construed as legal advice.

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